Saturday 27 April 2013

The Mighty River Power sell-off

You'd have to be a news junky or an insomniac to pick up this bit of news that has not made the headlines – something that you'd think was of interest to potential investors in Mighty River shares.

This is one of several examples of news stories that come through through broadcasts in the early hours of the morning (on Radio New Zealand), but disappear by the time the Morning Report comes round.

Someone doesn't want the hobbits of Middle Earth to know this.

Mind you, if you want to invest your hard-earned money in something that already belongs to you, I've got a word to describe you.

Investors more wary of Mighty River shares - survey
The announcement of plans by Labour and the Greens for the electricity industry has had a profound impact on investors' intentions towards the Mighty River Power share sale.

Labour and the Greens intend setting up a single purchaster of electricty, if they win the 2014 election.

A survey commissioned by the Shareholders Association of 400 active retail investors shows investment interest has fallen since the Opposition parties' announced.

While 72% wanted to buy Mighty River Power shares before the plans were announced, 36% of those questioned now want to buy the shares.
Almost 54% said they will be investing less money in Mighty River Power than they had originally intended.

Association chair John Hawkins said the results illustrate the impact the policy announcement has had on investors' decision-making.

A senior associate at the Institute of Government and Policy Studies, Geoff Bertram, says its no surprise investors are backing off given what he calls the radical uncertainty they face.

He hopes first time buyers will be given an explanation of how the different possible regulatory regimes would affect share prices

Mighty River shares 'high risk' – Morningstar
Potential investors can now read a report on Mighty River Power's prospects from large international research firm Morningstar.

23 April, 2013

While Morningstar recommends people invest in Might River, they warn Labour's power plans could significantly reduce the value of the shares.

They are attracted to Might River Power because of its low hydro and geo-thermal generation costs which help boost its profits, but it still maintains it is far from risk-free.

"It's a high risk [investment]; it's not for the faint-hearted," says Morningstar equity research analyst Nachiket Moghe.

Morningstar currently values Mighty River shares at $2.70 a piece, but Mr Moghe says regulation of power prices by the Opposition could knock that down to around $2.

"You could easily see about 60 to 70 cents per share shaved off the valuation of the company if Labour does come to power".

In addition to this, leading financial writer Martin Hawes is warning novice investors and anyone with a mortgage to stay away. He thinks these people are better investing with KiwiSaver.

"For me, for my money, the risk is too great," he says.

"Mighty River Power's not the only investment in town; there is a whole bunch of other things you could be investing in".

Mr Hawes, who is the author of more than 20 books on investment, says professional fund managers and those with a diverse portfolio of stocks are the ones who will want to buy shares.

He is alarmed by stories of people raiding their credit cards to invest.

"You are always better to use any spare cash that you have to repay debt, rather than to invest," he says.

"The returns from the investment are unlikely to be as high as what you will be paying for the debt".

However even for professional investors like Paul Glass of Devon Funds 
Management, it's not easy assessing Mighty River's prospects.

"Once it is listed its stock price performance is much more likely to closely relate to the political polls, rather than actually how the underlying business is performing," says Mr Glass.

There is plenty to consider for potential investors and not much time.
Applications close on Friday of next week at 5pm.

For video coverage go HERE and HERE

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